How to Organise and Business

From spring of 2009. Rumours were circulating about Shell being about to reorganise

This is an age old question with plenty of associated literature. It can't be simple, as most businesses seem to glory in spending their time forever reorganising. With rumours flying and a new CEO later this year, perhaps it is a timely question for RDS right now.

I love the Greg Lewin mantra, which is to try to avoid reorganisation if at all possible. This springs from a belief that all organisations have flaws many of which cancel out, and that any change is costly in terms of loss of focus on customer during transition. In GS, he has implemented a series of smaller changes, so that actually GS looks quite different from when he first became President in 2003, and this has been achieved without any wholesale reorganisation. It is arguable that the resulting structure is such a patchwork that it is reaching the end of its useful life, but I really respect the intent.

I have a simple mantra about organisation too, developed over quite a few years of experience by now. Key is understanding the basic building block of a business. In retail, the right building block is usually the outlet - the piece of property from which business is conducted. For Shell retail, for Marks and Spencer, for Albert Heijn, for McDonalds, for anyone operating out of sites with staff touching customers at a point of sale, it is usually the same. Simple and obvious? Maybe. But it took Shell until about 1999 to work it out. Look at our retail org charts before that and you would see product based and all sorts of other silly alternatives. Believe it or not, it was only about then we bothered to build systems to measure the profitability of an individual site. If every site is a winner, a retail business will be a winner. Simple. Organise around that, measure around that. Do things like buying across a network, but recognise the primacy of the site.

You can reach similar conclusions for other parts of Shell. Manufacturing is built arount the plant. Capital projects is built around the project. Upstream business development is built around the customer. Lubricants is harder, it could either be the channel or the product (I prefer channel).

Now, where does this lead? It has implications within a business line and for a corporation made up of several business lines. Within retail for example, because the outlet is the buidling block, the strategy should be driven by a (small) number of business models, containing outlets of similar characteristics, requiring similar management styles and KPI's. Don't mix these up - to run a good dealer owned operation requires different mindset, skills, metrics etc than running a company operated network. Choose to one, or the other, or both, but if both don't mix them. Easy. Do we achieve this, even now - no.

It is also important to use the building block as the motivator and give those operating the prime building block power compared with other functions. In capital projects, the building block is the project (or opportunity, if we want to be pedantic). So the project manager is the most important job, give them power and responsibility, build your systems around them. Categorise different project types, requiring different skill sets, and divide the organisation and information by those categories. Make sure that the other functions are deployed as much as feasible within projects or through projects, and keep costs down in areas outside project teams. If every project is a winner, the business will be a winner. Empower and motivate and reward project teams.

What about corporations made up of lots of businesses? Think about the primary building block of each one, and the primary capabilities to succeed competitively. Prune to minimise the number of different skill sets. Be sceptical when people tell you about synergies between business units where skill sets and KPI's differe radically. Become the best in the world at some skills sets (and use Porters 5 forces and other tools to check you've chosen ones which can be profitable and sustainable). And if you choose to keep a range of businesses with different skill sets and KPI's, keep them apart, use that as your dominant organisational line.

I have seen the downside of ignoring this rule many times. The biggest one was Norske Shell when I was there in the 90's. The lead business was upstream - that was all about government relations, big risks and big numbers, technical skills. Retail, on the other hand, is all anout detail, lots of small numbers, commercial skills and running sites. Get the same leader running both and looking at a dashboard of a combination of both, and you have a recipe for disaster.

So what does this mean for Shell. Personally I'm a proponent of putting all the manufacturing operations together, whether they be upstream, downstream or gas and power. After all, the critical skills and metrics are the same - HSSE, operational excellence, reliability, cost control. For my money, some of these get lost in upstream businesses today.

Take this big step and the rest falls into place. Something around business development. A single services and projects business. And some marketing and trading businesses - after all, marketing LNG and marketing lubricants have a lot in common.

At the same time, we can choose which of these areas we can be the best in the worls, and which the external environment offers the clearest path to success.

There are downsides to all of this, not least the one Greg would point out about the internal cost of implementing such a change. But it is the best way to follow my rule. And it would be my solution.